It was a relatively quite day on the Canadian preferred share market, with PerpetualDiscounts up 6bp, FixedResets basically flat and DeemedRetractibles gaining 4bp. Volatility was muted, with only two issues on the Performance Highlights table. FixedResets thoroughly dominated the Volume Highlights table, possibly due to the settlement today of SJR.PR.A; although it looks like HSBC (who?) got some work acting for a big client reducing preferred share exposure in a big way.

HIMIPref™ Preferred IndicesThese values reflect the December 2008 revision of the HIMIPref™ IndicesValues are provisional and are finalized monthly

TD sold four blocks of 10,000 each to TD at 26.25; then another 30,000 to RBC at the same price. TD crossed 29,400 at the same price; RBC crossed 30,000 at the same price again.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-11-30
Maturity Price : 25.00
Evaluated at bid price : 26.25
Bid-YTW : 3.20 %

The European Union may withhold the next amount of credit to Greece after a report by an international panel of inspectors concluded that the debt-laden country has missed all the fiscal targets agreed in its rescue plan, Der Spiegel said, without saying how it obtained the information.

Portuguese 10-year bonds fell the most in a week, sending the yield spread with German bunds, Europe’s benchmark government security, 18 basis points higher to 678 basis points, the most since Bloomberg began gathering the data in 1997. Italian 10-year yields rose six basis points to 4.81 percent after the government sold 8.3 billion euros ($12 billion) debt. Spain is due to sell debt on June 2.

It was a mixed day on the Canadian preferred share market, with PerpetualDiscounts gaining 17bp, FixedResets basically flat, and DeemedRetractibles down 4bp. Volatility was minimal, with only one entry in the Performance Highlights table. Volume was OK, a little on the low side, as befits a day when the US market was closed.

HIMIPref™ Preferred IndicesThese values reflect the December 2008 revision of the HIMIPref™ IndicesValues are provisional and are finalized monthly

The number of Americans signing contracts to buy previously owned homes plunged more than forecast in April, a sign the industry that triggered the recession continues to struggle.

The index of pending home resales declined 12 percent after a revised 3.5 percent increase the prior month, the National Association of Realtors said today in Washington. The median forecast in a Bloomberg News survey called for a 1 percent decline.

The prospect that foreclosures will continue to drive down property values may keep buyers on the sidelines awaiting further price declines. Unemployment at 9 percent and stricter credit requirements are further signs that a housing recovery may take years to unfold.

Dexia SA (DEXB), the bank that took the most Federal Reserve discount-window help in October 2008, said it will take a charge of 3.6 billion euros ($5.1 billion) for the anticipated sale of mostly U.S. residential mortgage-backed securities and long-term bond disposals.…By writing down the U.S. asset-backed securities to their market value, Dexia said it will be in a position to waive the Belgian and French state guarantees covering losses on those assets and renegotiate the terms and consequences arising from the state support.

Note that they’re going to “take a charge” rather than cover the loss with reserves. That gives you a nice warm feeling about European bank balance sheets, doesn’t it?

Long-term readers of PrefBlog will recognize one of my hobby-horses: genetic modification of cellular organisms to take carbon dioxide out of the air (good) and convert it to fuel (better). So I was pleased to see news of the Solazyme IPO:

Solazyme Inc., the developer of oil products from genetically modified algae, jumped as much as 22 percent in its first day of trading.

The shares rose $3.15, or 18 percent, to $21.15 at 1:18 p.m. in Nasdaq Stock Market trading. Earlier it reached $22, a 22 percent gain from its initial price of $18 a share. The South San Francisco, California-based company sold 10.975 million shares, raising $197.55 million, according to a regulatory filing.

The demand validates the technology used to convert organic material into biofuels and specialty chemicals, according to Pavel Molchanov, an analyst for Raymond James & Associates Inc. It remains to be seen whether Solazyme, or rivals that are developing similar products such as Gevo Inc., and Amyris Inc. (AMRS), can do so cost-effectively.

“The science in their process works,” Molchanov said today in a telephone interview. “So as we think about the risk factors that investors in these companies have to confront, it’s not a science risk. It’s how successfully can they scale up to be a large production business.”

The logic of the third paragraph there rivals that seen during the Tech Boom, but never mind (the demand validates the science? Let’s take a vote on gravity!). Note that I have no idea of whether the science works, whether the engineering for scale-up is promising, or whether the shares are good value at the price … I’m just happy to see that a technology I’ve wondered about for thirty years is coming to market.

I join the Chairman in thanking the Division of Corporation Finance and the other divisions and offices that have contributed to the proposal under consideration today.

As required by Sec. 926 of the Dodd-Frank Act, we are proposing rules that would disqualify securities offerings involving certain “felons and other ‘bad actors’” from reliance on the safe harbor from Securities Act registration provided by Rule 506 of Regulation D.

Unfortunately, however, I am not able to support this proposing release, because the proposed rules would apply retroactively by disqualifying transaction participants from engaging in Rule 506 offerings for conduct occurring prior to enactment of the Dodd-Frank Act.

I want to emphasize at the outset that I do not disagree, as a policy matter, with disqualifying so-called “bad actors” from Rule 506 offerings.…Where, as here, the statute and jurisprudence do not, in my view, support retroactive application of these rules, it would be more appropriate to apply our rules prospectively, and/or seek from Congress a technical amendment to the statute to clarify that these provisions should be applied retroactively if that was indeed Congressional intent.

All that aside, the Canadian preferred share market had a reasonably good day overall, with PerpetualDiscounts gaining 18bp, FixedResets up 4bp and DeemedRetractibles off 1bp. Volatility was muted. Good volume was dominated by CM issues.

HIMIPref™ Preferred IndicesThese values reflect the December 2008 revision of the HIMIPref™ IndicesValues are provisional and are finalized monthly

•We are raising the ratings on DundeeWealth Inc., including the long-term counterparty credit rating to ‘A’ from ‘BBB-‘, and removing the ratings
from CreditWatch positive where they had been placed following Scotiabank’s Nov. 22, 2010, acquisition announcement.

The upgrade reflects our view the company is “strategically important” to Scotiabank and its wealth management operations and thus benefits from the implied support from being associated with a higher rated entity; we applied three notches of support to the stand-alone rating for being strategically important.

The stable outlook reflects our expectation that DundeeWealth will maintain or improve its position in the Canadian wealth management sector.

This is a rather stunning 4-notch upgrade on the Preferred scale, to P-2(high) from P-3, and from BB to BBB+ on the global scale.

Apart from that, said Mrs. Lincoln, it was a very nice evening at the theatre! The Canadian preferred share market did quite well today, with PerpetualDiscounts gaining 15bp, FixedResets picking up 1bp and DeemedRetractibles winning 29bp. A good crop of winners is in the Performance Highlights table, led by CM.PR.H, which is being redeemed and followed by others that are not seeking NVCC status. Volume was good, and again CM issues were featured.

HIMIPref™ Preferred IndicesThese values reflect the December 2008 revision of the HIMIPref™ IndicesValues are provisional and are finalized monthly

that it intends to seek to have its non-cumulative Class A preferred shares, Series 26, 27 and 29 (the Convertible Preferred Shares) treated as non-viability contingent capital (NVCC) for the purposes of determining regulatory capital under Basel III.

The Office of the Superintendent of Financial Institutions (OSFI) has indicated that it is not aware of a factual basis that would question the compliance of the Convertible Preferred Shares with the principles specified in OSFI’s draft advisory on NVCC published in February 2011 (the NVCC Advisory), provided that:

(i) CIBC irrevocably renounces its rights to convert the Convertible Preferred Shares into CIBC common shares by way of a deed poll except in circumstances that would be a “Trigger Event” as described in the NVCC Advisory; and

(ii) CIBC provides an undertaking to OSFI that CIBC will immediately exercise its rights to convert each of the Convertible Preferred Shares into CIBC common shares upon the occurrence of a Trigger Event.

OSFI has indicated that certain features of the Convertible Preferred Shares will not be acceptable terms and conditions for future instruments to be considered NVCC.

CIBC intends to seek formal confirmation from OSFI regarding the capital treatment of the Convertible Preferred Shares after OSFI finalizes the NVCC Advisory. These actions do not restrict CIBC’s existing redemption rights under the terms of the Convertible Preferred Shares.

By renouncing CIBC’s conversion rights except upon the occurrence of a Trigger Event, the Convertible Preferred Shares will continue to not be dilutive to earnings per share following the adoption of International Financial Reporting Standards (IFRS) commencing November 1, 2012 nor for the portion of the IFRS comparative year ending October 31, 2011 that is subsequent to the renunciation date.

The Series 26 Shares will not be convertible at the option of CIBC prior to April 30, 2008. On or after this date, CIBC may, subject to the approval, if required, of the stock exchanges upon which any shares of CIBC are listed, convert all, or from time to time any part, of the outstanding Series 26 Shares to be converted into that number of freely-tradeable Common Shares determined (per Series 26 Share) by dividing the then applicable redemption price per Series 26 Share, together with declared and unpaid dividends to the date fixed for conversion, by the greater of $2.00 and 95% of the weighted average trading price of the Common Shares on the TSX for the 20 trading days ending on: (i) the fourth day prior to the date specified for conversion, or (ii) if such fourth day is not a trading day, the last trading day prior to such fourth day. Fractional Common Shares will not be issued on any conversion of Series 26 Shares but in lieu thereof CIBC will make cash payments.

Update, 2011-12-17: Other issues with similar prospectus provisions entitling them to make a similar application are ELF.PR.G, ELF.PR.F, RY.PR.W, TD.PR.M and TD.PR.N.

its intention to redeem all of its issued and outstanding Non-cumulative Class A Preferred Shares Series 30 for cash. The redemptions will occur on July 31, 2011. The redemption price is $25.75 per Series 30 share.

The $0.30 per share quarterly dividend announced on May 26, 2011 will be the final dividend on the Series 30 shares and will be paid on July 28, 2011 to shareholders of record on June 28, 2011, as previously announced.

Holders of the Series 30 shares should contact the financial institution, broker or other intermediary through which they hold the shares to confirm how they will receive their redemption proceeds.

German banks have “manageable” risks related to Greek sovereign debt and the Mediterranean country’s economy, according to Fitch Ratings, which said it doesn’t foresee any action on the lenders’ credit ratings.…“A hypothetical 50 percent haircut of Greek sovereign exposure would not result in such a depletion of banks’ capitalization that a rating action would automatically be triggered, even for the more exposed banks,” Fitch said. “These either have strong owners, sufficient profitability or capital able to absorb potential losses without a structural impact on their business model, funding or franchise.”

German banks cut their holdings in Greece to $34 billion in the last quarter of 2010 from more than $40 billion, while the French have reduced claims to about $57 billion from $63 billion, according to figures from the Basel, Switzerland-based Bank for International Settlements. Commerzbank AG (CBK), Germany’s second-biggest lender, said earlier this month that it would be able to absorb any “stress” related to its sovereign-debt holdings, such as a debt restructuring.

DBRS Inc. (DBRS) has today downgraded the subordinated debt ratings, including the Dated Subordinated Debt rating of The Governor and Company of the Bank of Ireland (Bank of Ireland or the Group), to CCC from B (high). The ratings of all subordinated debt of the Bank of Ireland remain Under Review with Negative Implications, where they were placed on 3 December 2010. The rating action reflects the recent actions towards subordinated bondholders at two of Bank of Ireland’s domestic peers, and DBRS’s view that there is an increasing likelihood of similar actions towards the Group’s subordinated bondholders.

The rating action also considers the Minster for Finance’s comments that subordinated bondholders are expected to make noteworthy contributions to the incremental capital requirement under the PCAR results, which were acknowledged by the Bank of Ireland in its 1Q11 Interim Management Statement.

Credit-default swaps insuring the subordinated debt of Bank of Ireland Plc surged on concern the government will impose losses on bondholders as it has done with Anglo Irish Bank Corp. and Allied Irish Banks Plc.

Allied Irish this week offered to buy back junior debt at discounts of 75 percent to 90 percent prompting Standard & Poor’s to downgrade the notes to the lowest D for default grade. The “distressed exchange” is similar to that offered to Anglo Irish bondholders last year as the government seeks to share the costs of bailing out its lenders.

“The coerciveness of the Irish government has spread from Anglo to Allied,” said Alexander Plenk, an analyst at UniCredit SpA in Munich. “The offer they made was pretty much the same, and the fear in the market is that they will do the same thing with Bank of Ireland.”

ANGLO Irish Bank Corp offered to exchange €1.6 billion of subordinated debt at a discount, paying in new bonds at a rate of 20 cent on the euro as the nationalised lender seeks to generate capital.…
Anglo Irish will offer bondholders that don’t take up the exchange 1 cent per €1,000 face amount to redeem their floating-rate notes due in 2014, 2016 and 2017, the lender said last night. The new securities will be due 2011 and guaranteed by the Government, according to the statement.

It was a mixed day on the Canadian preferred share market, with PerpetualDiscounts up 7bp, FixedResets basically flat and DeemedRetractibles up 11bp. Volatility – in the index-included issues! – was low and volume was average.

PerpetualDiscounts now yield 5.55%, equivalent to 7.22% interest at the standard equivalency factor of 1.3x. Long Corporates now yield a little under 5.3% (!) so the pre-tax interest equivalent spread is now about 190bp, a sharp widening from the 180bp reported May 18, as yields have moved in opposite directions.

But the big news of the day was the yellow blood all over the carpet!

YLO Issues, 2011-5-25

Ticker

Quote5/24

Quote5/25

Bid YTW5/25

YTWScenario5/25

Performance5/25(bid/bid)

YLO.PR.A

24.11-24

23.84-95

7.85%

Soft Maturity2012-12-30

-1.12%

YLO.PR.B

18.47-54

17.85-99

11.99%

Soft Maturity2017-06-29

-3.36%

YLO.PR.C

19.80-20

18.88-00

8.93%

Limit Maturity

-4.65%

YLO.PR.D

19.96-00

19.17-34

8.95%

Limit Maturity

-3.96%

Cool!

HIMIPref™ Preferred IndicesThese values reflect the December 2008 revision of the HIMIPref™ IndicesValues are provisional and are finalized monthly

Standard & Poor’s said Saturday that country was in danger of having its debt rating lowered if it could not reduce its public borrowing and improve economic growth.

The ratings agency lowered its outlook for Italy’s debt to negative from stable. That means there is a one-in-three chance that S&P would downgrade Italy’s debt rating in the next two years.

Fitch and Moody’s, the other two main ratings agencies, have said they see no reason to alter their outlook for Italy’s debt. The S&P warning was enough to rattle European markets and cause investors to worry that Italy could be next on the list of countries affected by widespread European debt after Greece, Portugal and Ireland.

Greek Prime Minister George Papandreou’s Cabinet is set to endorse additional deficit cuts and asset sales, fending off speculation that the country is headed to a restructuring.

The cost to insure Greek debt against default rose to a record and the yield on its 10-year bonds increased to a euro- era high after Standard & Poor’s said May 20 it may cut Italy’s credit rating. That warning came hours after Fitch Ratings cut Greece three grades.…Greek 10-year yields jumped 19 basis points to 16.76 percent as of 9:23 a.m. in London while yields on two-year notes climbed 12 basis points to 25.58 percent. Italian 10-year yields rose six basis points to 4.84 percent.

The cost of insuring government and corporate debt rose in Europe, according to traders of credit-default swaps. Contracts on Greece soared 29 basis points to a record 1,373, Ireland jumped 14 to 655 and Portugal rose 9 to 649, while Italy increased 14 to 174 and Spain climbed 13 to 275, prices from data provider CMA showed today.

In Athens, Papandreou is chairing a Cabinet meeting today to discuss his fifth austerity package since getting a 110 billion-euro rescue from the European Union and the International Monetary Fund.

The government is looking for ways to speed up plans to sell 50 billion euros of assets, the equivalent of almost 25 percent of gross domestic product. The meeting comes as a team of IMF and EU inspectors prepare to return to Athens this week to complete their review of Greece’s progress in meeting the bailout terms.

The Greek government endorsed an accelerated asset-sale plan and 6 billion euros ($8.4 billion) of budget cuts to win extra aid and stem a market slide that threatens to swamp the most debt-laden euro-area nations.

Belgium had the outlook on its AA+ investment-grade credit rating lowered to negative at Fitch Ratings yesterday as the cost to insure Greek debt against default rose to a record and the yield on its 10-year bonds increased to a euro-era high.…Greek 10-year yields jumped 46 basis points to a record 17 percent, while yields on two-year notes climbed 79 basis points to 26.25 percent. Contracts on Greek default insurance soared 29 basis points to a record 1,373.

“The bond market is the only language policy makers will listen to,” Axel Merk, chief investment officer for Merk Investments Llc said in an interview with Bloomberg Television’s Betty Liu. “Once the bond markets impose austerity on the country that’s when they follow through, when there is a backing off, when things are going better, that’s when they lapse.”

I’ll bid on the Elgin Marbles!

Whenever you deal with somebody who proudly sports a title containing the word “ethicist” or “advocate”, you know you’re going to hear a lot of arrogance and idiocy. For example, there was an article in Sunday’s Star titled DNA diviners: Valuable service or dangerous novelty?:

Knowledge of your carrier status is beneficial, says Kerry Bowman, a medical ethicist at the University of Toronto who specializes in genetic issues.…But Bowman sees ethical problems with the disease susceptibility information, fearing it will be misunderstood or cause unnecessary fear.…“It does raise ethical questions. . . if you’re giving people genetic information about things they cannot control,” he says.

“I mean an increased prostate cancer (risk) or something, what can you do with that except stew?”

His fear that genetic information will be misunderstood or cause unnecessary fear is simply arrogant. Get back to your book-burning, Mr. Bowman. As for what people can do with increased prostate cancer risk … well, one thing you can do is take out increased insurance that covers prostate cancer. The adverse selection implied by idiotic restrictions on the information that insurance companies can use will be the death of the industry.

We look at this first and foremost as an opportunity for Canada and a growth based deal, not the reconstitution of a very strong monopolistic silo. I think the Maple team has highlighted their preferred model — the Hong Kong Stock Exchange or Deutsche Borse model — which is based on a hermetically sealed clearing silo and no competition.

There are issues today in terms of competition if you merge with your competitor, if you integrate the clearinghouse — of course that’s where the growth is going to come from because by merging with the clearinghouse you’ve prevented any future competition from entering the market. Who’s going to pay for this? Perhaps not the founding members, certainly everyone else will.…If [Alpha and CDS] are contributed as equity does the banks’ ownership go above 50% if you have to put in another couple of billion? The whole construct, which is based on pricing power resulting from the setting up of a monopoly, comes crashing down when you look at the issue of getting approval from the shareholders of Alpha and CDS and that has to be based on a pricing agreement that realizes substantial value for them.

We don’t know anything about what the competition authorities are going to think in terms of this reconstitution of a monopolistic silo.…I think this goes against — not just in France or Brussels or Germany or the U.K. or the U.S. — this goes against the general trend that regulators… do not want banks to own infrastructure, because infrastructure has to remain neutral.

It’s definitely not the sense we get history is moving, both in the United States and in Europe. You need at the end a separation, you need neutrality, because it’s not just about banks. Big wholesale banks are very important customers, but so are small and mid-sized broker dealers. If you get price increases linked to the integration of a clearinghouse [like CDS Inc.] who is going to pay for those increases? Who is going to pay for the fee increases resulting from lessened competition at the trading level? Is it going to be the founding members of that particular Maple consortium, or is it going to be everybody else? It’s the small corporate issuers, the small broker dealers. If a platform is not neutral, it cannot function as a exchange should.

The value of the bourse’s offer to buy TMX Group Inc. (X) with equity fell 4.9 percent below the price of the Toronto stock exchange operator’s shares yesterday, according to data compiled by Bloomberg. The gap is the widest of any all-stock deal over $1 billion, indicating to arbitragers that LSE’s equity alone won’t be enough to fend off a higher bid from a group of Canadian banks and funds trying to keep TMX in local hands.

Jim Chanos, the hedge-fund manager known for predicting Enron Corp.’s 2001 collapse, says he’d short sell Chinese companies listed in the U.S. if it were feasible to borrow shares to open the bearish positions.

The Bloomberg Chinese Reverse Mergers Index has plunged 41 percent since Nov. 8 amid speculation financial statements from companies such as China MediaExpress Holdings Inc. (CCME) can’t be trusted. The concern intensified this week after Longtop Financial Technologies Ltd. (LFT), whose initial public offering was underwritten by Goldman Sachs Group Inc. and Deutsche Bank AG, said its auditor quit because of false records.

The province joined an elite club of provinces on Tuesday when Standard & Poor’s upgraded its debt rating to triple-A. The only provinces to share the triple-A honour are western neighbours Alberta and British Columbia.…Rather than quickly spending its newly-earned wealth, the provincial government has put its tax revenue toward paying the bills. S&P gave special credit to Saskatchewan for its “low-and-declining debt burden.” As of March 31, the province’s fiscal year-end, Saskatchewan’s debt totalled $4.6-billion, representing 38 per cent of this year’s projected operating revenues and only 8 per cent of its gross domestic product. Canada’s federal debt-to-GDP ratio sits at around 35 per cent.

College students’ choice of major can mean the difference between median earnings of $120,000 for petroleum engineering and $29,000 for counseling psychology, a study by Georgetown University showed.

Of the top 10 undergraduate majors with the highest median salaries, eight were in engineering, including aerospace, chemical and mechanical, according to the study released today by Georgetown’s Center on Education and the Workforce.

It was a mixed day on the Canadian preferred share market, with PerpetualDiscounts gaining 5bp, FixedResets losing 10bp and DeemedRetractibles up 9bp. Not much volatility, but volume was above average. TMX block trading data from the Financial Post is not available at time of writing.

HIMIPref™ Preferred IndicesThese values reflect the December 2008 revision of the HIMIPref™ IndicesValues are provisional and are finalized monthly

Yield Calculation Conventions

Meta

Registration Problems?

Assiduous Readers are required to register prior to commenting on my posts, which helps reduce the volume of spam. In turn, registration requires that the A.R. respond to an eMail that will be sent automatically and immediately upon completion of the registration form

If you do not receive this eMail, it has probably been intercepted by your software or ISP as spam. Try sending an eMail to wordpress@prefblog.com; this will usually result in your being able to receive future eMails. Then you may log in; tell the machine you have forgotten your password and it will eMail one to you.

Sorry about all this rigamarole. If all else fails, send me an eMail and I'll sort things out.